Cost Leadership Essay

Strategy and Structure

The purpose of business-level strategies is to create differences between the firm’s position and those of its competitors. To position itself differently from competitors, a firm must decide whether it intends to “perform activities differently” or to “perform different activities”.

Cost leadership strategy

Tiger airways has chosen the former it exploiting a cott leadership strategy. It has an integrated set of actions taken to produce services with features that are acceptable to customer at the lowest cost relative to that of competitors. Tiger’s costs structure foolows the shirt-haul low-cost model of Ryanair. It targets a broad customer segment and concentrates on finding ways to lower its costs relative to competitors by constantly rethinking how to complete its primary (inbound and outbound logistics) and support activities to reduce costs even further. Like most other carriers, Tiger airways uses a number of method to reduce costs.

Keeping labor cost low

Tiger airways does not spend much on advertising or marketing. Its flight booking is all through its online portal or call center. It does not engage agency in ticket distibution in order to minimize the cost especially that of labor.

Tiger airways also reduces labor costs by using a streamline fleet that reduces the training and retraining expenses. Employees are generally paid according to their performance and generally less than traditional airlines. Tiger airways also tries to keep its employee size at a minimum requirement. Retraining opportunities are limited. This leads to shortage of qualified pilots in high-demand periods. Moreover, the company does not have a “cadet pilot programme” (CCP) like many other airlines such as SIA; thus tiger airways does not have pipeline of pilots for the near future.

No frills services and revenues

Tiger airways has managed to price its tickets at comprtitive prices by providing no frills services. That means, tiger airways also recognizes that the willingness to spend might vary among its consumer base and actively tap onto that. In the financial year ended 31 March 2010, 26% of tiger airways group’s revenues comes from ancillary revenue, which was at $127.6 million as compared to the total revenue of $494.6 million. Tiger airways charges for many optional extras. These extra can related to alternative services like method of payment when buying ticket. It also charges for extra services like luggage fee and seat fee. Tiger airways also offers food and beverage for purchase as part of the “tiger bites” buy-on-board programme at above-market prices.

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